AGRICULTURAL POLICY AGEC 429
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Farm Bills Coupled Payments lmprovem ent and Market Transition Act Direct Payments over 7 year period x program yield safety net level maintained upland cotton soybeans and other oilseeds Farm Security and Rural Investment Act F SRIA paym ents cro extra long staple cotton wool mohair honey dry lentils Food Conservation and Energy Act FCEA Program s Payments but limited to gt750000 adjusted acreage now 833 instead of 85 continued with marketing loan 1985 1990 1996 2002 2008 Nam e 1985 Farm Bill 1990 Farm Bill Federal Agriculture Improvem ent and Farm Security and Rural Food Conservation and Reform FAIR Act Investment Act F SRIA Energy Act FCEA Countercyclical Reintroduced target Continued payments prices Crops MIG AMTA crops dairy Country of Origin Meat fish and produce 2002 Now implemented Labeling COOL expanded to include various other commodities Energy Policy First time included in Title IX Biomass Crop Assistance program BCAP Conservation Security Payments for replaced by Program implem enting practices Conservation that address water soil Stewardship Program or Wildlife habitat CSP Average Crop Revenue Election Optional revenuebased countercyclica ACRE 3rogram CCPs To longer eligible Direct Payments educed by 80 MLPs educed by 70 Crops VIust enroll for ALL covered crops Trade Programs Title 111 Reauthorizes funding for USDA s food aid export market development and export credit guarantee programs Farm Security and Rural Food Conservation and Improvement and Investment Act F SRIA Energy Act FCEA Disaster Disaster Program Program TAP Section 1 Analysis of Current Programs 1985 Farm Bill Target price deficiency payment program Prices increased and everyone expected that trend to continue 1990 Farm Bill Basically extended the target price deficiency payment program Some important changes in how the deficiency payment was calculated to reduce government costs of farm price and inco I Feder 1 2 3 4 me support al Agriculture Improvement and Reform FAIR Act of 1996 Referred to as the Freedom to Farm Bill First Farm Bill to legislate a policy to apply across all program commodities rather than policies for each individual program commodity Consequently the 1996 FAIR Act did not include titles for each program commodity as in the past Title I Agriculture Market Transition Act AMTA a Overturned much of previous farm bills b Eliminated many key policy tools i No target prices or deficiency payments ii No annual setaside programs or supply controls iii Almost complete planting exibility Implemented fixed declining decoupled Direct Payments to farmers over 7year period i Intended to help farmers transition from dependence on government assistance to dependence on the market ii Known by several names Production Flexibility Contract PFC payments Agricultural Market Transition Act AMTA Payments Freedom to Farm payments Direct Payments iii Direct Payment decoupled program replaced the Target Price Deficiency Payment coupled program d Direct payment rates established 39 Total dollars to be paid for each crop for each year through 2002 for the whole country set in the legislation Given the total dollars available per crop the direct payment rate per program bushel DPR for each farmer with base acreage is DPR Total dollars total program bushels where total program bushels base acreage x base yield x 085 Planting rules set to determine how many bushels each producer would receive a direct payment for Base acreage and yield for each farm were fixed and calculated from 5 year historical averages No setaside requirements Almost full planting flexibility Producers could plant almost anything except fruits and vegetables or nothing at all Decoupled direct payment DP to each producer is calculated as i DP DPR x base acreage x program yield x 085 1 DP to each farmer based on historical acreage and yield iii Direct Payments considered to be DECOUPLED because they don t change if current market price OR current production level changes Direct payment received by a farmer depends only on Total dollars provided for the program by Congress and Farmer s average production in past years Farmers NOT required to produce any crop to qualify for payment Direct payments were set to decline each year ower DPR each year until they reached zero after 7 years C iv e iv lt S Then government out of business of supporting farm price and income vii Direct payments are income transfers to farmers that do not distort prices production or trade Cannot show the effects of AMI A payments graphically No lossesgains in producerconsum er surplus Most efficient way to transfer income to producers f Market Loan Program Coupled Payments i Marketlevel loan rates safety net level maintained ii Expanded to cover all farmers of covered crops wheat feedgrains rice upland cotton soybeans and other oilseeds even those who do not take outNR loans iii Instead of forfeiting their crop to the government farmers keep crop and repay loan at lower market price or announced repayment rate Nonrecourse feature not relevant for many crops Provided larger payments as prices dropped iv Gain to farmers with NR loans called a Marketing Loan Gain MLG Definition Marketing Loan Gain MLG PL 7 P The gain to a farmer from being allowed to repay a NR Loan Rate at a lower market price or repayment rate v Payments to farmers who do NOT take outNR loans are called Loan Deficiency Payments LDPs A payment equal to the MLG to farmers who do NOT take out a NR loan Only difference between an MLG and an LDP is that an MLG is a payment to farmers with NR loans while an LDP is the same payment to farmers without loa vi Note that ALL farmers get the same payment not just those with NR loans Thus terms MLG and LDP often used interchangeably vii Coupled payments to farmers NOT totally eliminated since the Market Loan Program was maintained and expanded viii Most producers receive both a Direct Payment decoupled payment AND a Market Loan payment coupled payment g THE COMPROMISE i Market Loss Assistance Payments MLA Greater direct payments to farmers decoupled without changing the structure of the 1996 Farm Bill Initially vetoed by Clinton because not enough additional farm income support but eventually approved MLA or Emergency Assistance payments in each year remaining in the 1996 Farm Bill from 19982001 MLA payments multiplied the direct payments received by producers by a factor 5 to 2 of l h NEW FEATURE EQUIP PROGRAM i Financial and technical assistance to encourage adoption of farming systems that conserve resources and enhance environmental performance ii Costshare and incentive payments for eligible conservation practices under shortterm l to 10year contracts II Farm Security and Rural Investment Act F SRIA of 2002 l Commodity provisions similar to 1996 farm bill Continued decoupled AMT A direct payments Continued marketing loan program MLGs and LDPs No production controls Introduced CounterCyclical Payments CCPs V HeP N a Similar to the target pricedeficiency payment program that was terminated with the 1996 Farm Bill b Reintroduced target prices c Established permanent mechanism to make income transfers to producers automatically when prices are low rather than to pass special emergency legislation in low price years like the MLA d For all covered crops plus dairy 6 Allowed farmers to update their acreage bases called the AMTA PFC or contract base and program yields a First time in many years b Some whole areas had switched to other crops e g from corn to cotton but still getting payments on old base and program yield eg corn 7 CountryOfOrigin Labeling COOL for meat fish produce and meat fish peanuts required by 2004 a Meat products can be labeled as USmade only if the animals were born raised and slaughtered in the US Require labeling on each constituent part as to country of origin Bag of salad Costs of tracking origin of all components are very high Never implemented e Rules rewritten by USDA in 2009 but still not implemented 8 Added an Energy Policy Title for the first time a First time energy policy included in a farm bill b Committed 405 million to the development of ethanol and biodiesel fuels 9 Added new Conservation Security Program EQIP funding increased 6 fold Covered crops new name for program crops which are the crops eligible for income support programs a wheat corn grain sorghum barley oats upland cotton rice soybeans and other oilseeds sunflower seed rapeseed canola safflower flaxseed mustard seed Commodities eligible for loans a all covered crops plus extra long staple cotton wool mohair honey dry peas lentils and small chickpeas 13 Conservation Security Program a New program providing payments to land owners for implementing practices on working lands that address one or more resources of concern such as soil water or wildlife habitat 9957 rr HO H N b Wide range of practices can be subsidized c Producers must develop and submit a conservation plan to USDA that identifies the resources and designated land to be conserved d Plan must include conservation practices that fall within one of three tiers provided in the program i Tier 1 basic conservation practices soil erosion and nutrient management 1 20000 payment limit 2 Bonuses available for certain practices Tier II crop rotations and wildlife protection practices that provide resource management systems for the entire farm 1 35000 payment limit 2 bonus payments for implementing practices that exceed standards Tier Ill plan fostering longterm sustainability of natural resource base of farm 45000 payment limit onus payments similar to tier H bonuses HI Food Conservation and Energy Act FCEA of 2008 Backgroun a Prices rallied almost immediately after the 2002 Farm Bill was passed b Then prices began to drop in late 2004 through the early part of the 2008 farm Bill debate Since late 2006 however farm prices have been increasing rapidly ii39 a Congress vs White House 7 More spending vs less spending b Interest groups heavily involved c Support by various commodity interest groups for different policy instruments is directly related to the source of their federal payments d Sorting out who should get what especially with continuing budget deficits prevented an agreement in 2007 e So we have 2008 not a 2007 Farm Bill 3 Main Provisions 37 7 P F Direct Payments DPS i Continued except payments made on 833 of base acres rather than 85 ii Direct payment rates unchanged from 2002 Farm Bill iii Payment yields and base acreage calculations unchanged from 2002 Farm Bill iv Participants can still plant 100 of their base acreage to any crop except with some limitations on fruit vegetables and Wild rice CounterCyclical Payments CCPs i Continued with payments still on 85 of base acreage ii Target price levels unchanged from 2002 Farm Bill iii More crops now covered peas lentils chickpeas iv Payment yields and base acreage calculations unchanged from 2002 Farm Bill v Participants can still plant 100 of their base acreage to any crop except with some limitations on fruit vegetables and Wild rice NonRecourse Loans i Continued with marketing loan provisions that is no loan defaults No change in loan rates for 20082009 and then small increases for 20102012 Marketing Assistance Loans and Loan Deficiency Payments LDPs i Continued with some flexibility by Secretary to modify payment rates in event of ere disruption to marketing transportation or infrastructure Average Crop Revenue Election ACRE 7 most important change i Optional revenuebased countercyclical program but there s a catch ii Farmers can choose enroll in ACRE but there s a cost a They are no longer eligible for countercyclical payments CCPs over the remainder of the 2008 Farm Act 200912 b Their direct payments and marketing loan payments are reduced a Direct payments reduced by 80 b Marketing loan payments cut by 70 c Cannot enroll for just ONE crop They must enroll ALL covered commodities Wheat corn grain sorghum barley oats upland cotton rice soybeans other oilseeds peanuts dry peas lentils small chickpeas and large chickpeas they produce iii What do participating producers those who enroll in ACRE get a They get a revenue guarantee each year based on market prices and average yields for the respective commodities b The guarantee is based on Statelevel planted yields and national market prices but payments are calculated using State and farmlevel planted yields and national market prices iv Enrolled producers are eligible for ACRE payments only if TWO TRIGGERS conditions are met a ACRE actual State revenue lt ACRE program guarantee AND b ACRE actual farm revenue lt ACRE benchmark farm revenue v Why Revenuebased CCP rather than a Pricebased CCP a Pricebased a When prices go up farm payments go down and vice versa b But if prices are up because of a drop in yields for example drought then production and farm sales go down at the same time that farm payments go down b Revenuebased a When prices go up and yields go down then farm revenue doesn t change so no farm payment b And When prices go down but yields are up then again farm revenue doesn t change so no need for payment Payments made only When prices AND yields are down so that revenue is down 0 vi Problems with ACRE a Once in you can t opt out again and must enroll ALL crops on the farm Some may benefit from ACRE while other may lose b There must be not only a FARM revenue loss but also a STATE level revenue loss to trigger payments to famers in a given state So a farmer could have a complete crop failure and potentially receive no ACRE payment c Hard to determine if the gain under ACRE will be larger than the loss of CCP and cut in direct payments and market loans d If prices drop a lot from the historically high levels of the last year then if participation is high the government pay out could be huge 4 Other Provisions a Supplemental Agricultural Disaster Assistance Funds programs 39 Creates an Agricultural Disaster Trust Fund for disasters that occur before October 1 2011 ii Funds 5 Programs a Supplemental Revenue Assistance SURE a Provides protection against production andor quality crop losses on the entire farm all acres in all counties resulting from adverse weather Covers part of the losses between 90 of a farm s expected crop revenue and the level of protection purchased through federal crop ST ST Livestock Indemnity Payment LIP a Payments made if adverse weather causes livestock deaths that exceed normal mortality b Payment rate is 75 of market value the day before the death Livestock Forage Disaster Program Emergency Assistance for Livestock Honey Bees and Farm Raised Fish ELAP e Tree Assistance Program TAP Nursery trees and ornamentals b COOL CountryofOriginLabeling Program i Created under 2002 Farm Bill but never implemented ii Now implemented under FCEA of 2008 iii Expanded to apply to Muscle cuts of beef pork goat and lamb Ground beef pork goat and lamb Poultry whole and parts Peanuts pecans and macadamia nuts Perishable agricultural commodities 7 fresh fruits vegetables herbs Fish and shellfish implemented 442005 9 Wop957 c Payment Limits i No farm program payments to anyone whose average adjusted gross nonfarm income for the previous 3 tax years is greater than 500000 ii No direct payments to anyone whose average adj gross farm income for the previous 3 tax years is greater than 750000 iii Husband and wife generally can receive payments as separate individuals but 3 entity rule is gone iv Retains payment limits per person on individual parts of the commodity programs 40000 limit for direct payments 65000 limit on CCP AND ACRE v O personal limit on marketing loan gains or LDPs d Nutrition Programs 7 Title VI of FCEA of 2008 i Increases food stamp benefits and modifies food stamp eligibility rules ii Allows geographic preference when buying food for schools iii Adds money for fresh fruit and vegetable programs for schools I Why Do a b 0 P F iv The Emergency Food Assistance Program TEFAP v Nutrition programs account for 68 of FCEA of 2008 budget v Commodity programs account for only about 22 of budget vi39 Food stamps account for the bulk of nutrition program spending e Conservation Programs 7 Title II of FCEA of 2008 4 billion in funding f Energy Programs 1 Conservation Reserve Program continued a Acreage cap reduced fewer acres in program ii Environmental Quality Incentives Program EQIP continued a Increased fundin Conservation Security Program CSP replaced by Conservation Stewardship Program CSP a Contracts with producers to address one major resource concern on their entire operations Other conservation programs a Conservation of Private Grazing Land CPGL b Grassland Reserve ProgramGRP c Wetland Reserve Program WRP d Wildlife Habitat Incentives Program WHIP Farmland Preservation Program 7 Title IX ofFCEA of 2008 1 Biomass Crop Assistance program BCAP a Subsidies to producers of advanced biofuels b Advanced biofuels do not include any crop that falls under the commodity programs eg corn soybeans wheat cotton or cottonseed etc c They do include switchgrass corn stover wood chips etc The socalled cellulosic ethanol producers Subsidies for renewable energy projects iii iv 11 g Trade Programs Title III of FCEA of 2008 1 Reauthorizes funding for USDA s food aid export market development and export credit guarantee programs ii Addresses barriers to US agriculture exports Section 2 Agricultural Trade Policy Countries Intervene in Trade If both exporting and importing countries gain national welfare from trade why do governments intervene with policies to restrict trade When trade occurs even though there is a gain is national welfare in a country do all groups within the country gain from that trade Some groups gain welfare while some lose The NET effect is positive so the country as a whole gains even though some groups actually lose from trade Which groups lose and which gain depends on whether the commodity of interest is exported or importe Exported commodity producers gain and consumers lose Imported commodity consumers gain and producers lose The group that loses often attempts to put political pressure on the government to restrict trade When the government yields to this pressure and restricts trade it is called trade protectionism Trade Protectionism reduces the competitive pressures of the world market on domestic producers or consumers of a product Motivations for Trade Protectionism lt E39EEH Protect an Eroding Comparative Advantage Achieve Domestic Policy Goals Protect National Security Protect quotInfant Industry Protect National Health v39 ProtectRetaliate Against Policies of Other Trading Countries vii Protect Against ShortagesSurpluses viii Correct Foreign Exchange or BOP Problems i Exercise International Market Power Generate Revenues for the Government 1 Import tariffs and export taxes 2 Easier to collect than income or profit taxes II How Do Countries Intervene in Trade a Governments intervene in trade not only by restricting exports andor imports but also by providing incentives to boost the level of exports andor imports b Import Restrictions Tariffs and NonTariff Barriers to Imports i Tariffs Two types 1 Specific Tariff Fixed charge per unit 2 Ad Valarem Tariff Fixed percentage of value ii NonTariff Barriers NTB to Imports 1 import quota or license absolute limit on imports 2 variable levy variable charge to fix the level of import 3 packaging and labeling requirements 4 health and food safety regulations 5 foreign exchange restrictions 6 many others Export Restrictions Taxes and other Barriers to Exports gtltgtlt c 1 Export Taxes Two types 1 Specific Export Tax Fixed charge per unit 2 Ad Valarem Export Tax Fixed percentage of value ii Other Barriers to Exports 1 export quota or license absolute limit on exports 2 export embargo 7 zero export quota 3 voluntary export restrictions 4 foreign exchange restrictions 5 many others d Import Incentives 39 Import Subsidies Two types 1 Specific Import Subsidy Fixed payment per unit 2 Ad Valarem Import Subsidy Fixed percentage of value e Export Incentives 1 Export Subsidies Two types 1 Specific Export Subsidy Fixed payment per unit Ad Valarem Export Subsidy Fixed percentage of value III Export Markets vs Import Markets a Export market A market in which the production of a product X exceeds domestic demand for that product at most price levels i Excess Supply ES is the quantity of supply available for export at every price ii ES is calculated as supply minus domestic demand ES S DD iii As price increases quantity supplied increases and quantity demanded decreases so that more is available for export ie ES curve is upward sloping b Import market A market in which the domestic demand for a product M exceeds the production of that product at most price levels 39 Excess Dem and ED is quantity demanded not available from domestic production i39 ED is calculated as domestic demand minus supply ED DD S iii As price decreases quantity supplied decreases and quantity demanded increases so that more is demanded from imports ie ED curve is downward sloping Section 4 US Agricultural Trade Policy I Free Trade a Free Trade Longtime goal of US agricultural policy i World trade in agricultural goods free of any government intervention ii In practice US favors of free trade more in our export markets than in our import markets b Free trade increases net national welfare of all trading countries i Many groups within the US oppose the policy of free trade II Who Gains and Loses from Tra e a Producers in export markets gain i Free open growing global markets provides access to large consuming populations outside the count ii US or foreign policies that restrict our exports also reduce our production and producer profitability b Producers in import markets lose 39 Free trade means these producers must compete with imports which reduces their production and profitability c What about consumers Do they benefit from free trade i Answer It depends Consumers in export markets lose while those in import markets gain III Globalization and Economic Integration World has become increasingly interdependent in recent years i Changes in markets in one country affect markets in other countries ii Rapid improvements in transportation and communication technology among other things iii The increasing economic interdependence among countries is called globalization b Globalization forcing greater integration among countries i Creates challenge for US policymakers in managing the type and extent of integration that the US desires with other countries ii Trade policy used to manage the economic integration process c Three types of integration occurring in world markets i Economic integration a The removal of barriers to commercial interaction among countries b Higher levels of economic integration forces closer coordination among countries of their economic and macroeconomic policies c Continual economic integration eventually leads to adoption of same currencies and monetary systems and free movement of resources capital and labor cross borders ii Market integration The free flow of goods among countries b Markets in trading countries behave as single market rather than as many separate m arkets c Market integration occurs in commodity markets but also in financial and resource markets if there are no barriers to free flow of financial commodities or urces iii Policy integration a armonization of policies and regulations among countries b Market regulations and policies must be adjusted to keep commodities owing freely among countries c Without policy integration market distortions will occur d Inconsistent policies among trading countries generate pressures for change IV US Agricultural Trade Policy Goals and Objectives a General stated goals have been to promote free trade and economic integration between the Us and its trading partners b Four specific objectives of US agricultural trade policy i Expand market access for US agricultural commodities Overriding goal of US food policy 1 Negotiating agreements to reduce trade barriers with trading partners a Primary means of gaining greater access to foreign markets for US agricultural an food commodities 2 Three types of negotiation strategies Bilateral trade negotiations to establish free trade agreements between two countries to reduce trade barriers examples US Israel US Chile US Canada Regional trade negotiations to establish free trade agreement among countries in a geographic region to reduce trade barriers examples NAFTA MERCOSU39R European Union Multilateral trade negotiations to establish free trade agreements among a large number of countries across geographic regions to reduce trade barriers Example WTO ii Build markets for US agricultural commodities 3 Foreign Agriculture Service FAS of US Department of Agriculture administers three major programs to help build foreign markets a Market Development and Promotion Programs i Federal funds combined with producer check off funds voluntary or mandatory producer contributions to fund advertising and promotion activities in foreign countries ii Extensive overseas programs to persuade foreign consumers to prefer and buy US produced agricultural food products iii Commodity groups include beef pork corn soybeans cotton and many 0 ers b Foreign Market Information Program i FAS has extensive market information program throughout the world ii Agricultural counselors and attaches located in American embassies to identify potential US agricultural export sale opportunities iii They also to gather intelligence on foreign agricultural markets to provide timely information on markets like where droughts are occurring prices in foreign markets technology used abroad etc to US agriculture sector to effectively complete in world markets 2 US regulatory and policymaking officials iv Bad or old information can lead to producer market decisions or US policies that are inconsistent with the realities of world markets v Example disease outbreak in some region of the world should lead to quick regulations restricting food imports from that region 37 ST 0 c Export Credit and Enhancement Programs i Adm inistrated by FAS ii Programs offer purchasing credit or other inducements to generate additional sales of US agricultural commodities iii Four US programs r Export Enhancement Program EEP targeted export subsidy program to counter export subsidies by the European Union and other export competitors Viewed as highly tradedistorting their termination is currently being negotiated in WTO talks GSM export credit programs allow buyers particularly low income countries to buy US agricultural commodities on credit Step 2 cotton export subsidy program provided subsidy to foreign cotton buyers but was challenged by Brazil as illegal under the WTO agreement US lost the case and the step 2 program was terminated in August 2006 Dairy Export Incentive Program CDEIP program uses either dairy products or cash to subsidize exports of manufactured dairy products 19 9 He iv Assist countries in their economic development 1 Key objective in US efforts to build markets for US goods 2 Agriculture typically an initial focal point for US economic assistance to developing countries W y 57 OP Agricultural development activities help poor people feed themselves As agriculture sectors become more productive labor can then be transferred out of agriculture and employed in other economic activities making the economy less dependent on agriculture US economic development followed this process Also Japan South Korea Taiwan and other formerly underdeveloped countries Development brings increases in incomes and standards of living Increased income leads to increased demand for food US is major food exporting country so foreign economic development leads to increased foreign demand for food and increased exports of U S agricultural and food products 3 Four General Categories of Economic Development Assistance 37 ST 0 P Institution building helping developing countries build governmental and private institutions to support and administer an efficient agriculture and food system such as ministries of agriculture land and property rights management universities extension services producer marketing cooperatives and much more Infrastructure development building transportation energy irrigation systems storage facilities etc essential to the efficient functioning of agricultural markets and too expensive for developing countries alone to finance Technical assistance 7 providing services of experts from developed countries to assist in institution building and infrastructure development Applied research research by US and international agencies to find practical solutions to problems facing the agricultural sectors of developing countries Example International Maize and Wheat Improvement Center CIMMIT in Mexico v Increase US and world food security 1 Three Dimensions of US Efforts to Improve World Food Security a Food safety establishing policies to ensure the safety and integrity of the US and world food supply such as meat plant inspection systems regulation and use of pesticides and other chemicals in food production regulation of food additives policies to limit importation of contaminated or diseased foods etc C 7 Global food availability food aid and foreign assistance programs to move food from surplus areas of the world US to food deficit areas and to help foreign producers learn how to be more productive Individual food security programs to enhance access of poor to food such as food stamp program the Women Infant and Children WIC rogram and the school lunch program 2 Food Security Problems Most Prevalent in Africa and Parts of Asia and Latin America a US is world s largest supplier of food aid though PL480 Food for Peace program Free trade policy considered to enhance global food security by allowing for greater food production lower food prices for food and reater access to food by lower income consumers 0 ST Trade Policies Related to Imports 1 ii iii Free trade in import markets leads to increased imports of food which reduces US agricultural production Protectionist Policies a US policies designed to limit imports b Most established in the Trade Act of 1974 and in US farm bills c Referred to as Trade Remedy Laws TRLs which are intended to provide temporary safeguards against injurious imports Two Most Prominent TRLs Trade Act of 1974 Section 201 provides temporary protection against imports to facilitate a adjustments to a loss of international competitiveness To justify need for temporary protection only serious injury or the threat of serious injury must be demonstrated by the industry President may then impose a tariff called Countervailing Duty or CVD to provide protection against imports b Section 301 prohibits unfair trade practices which most commonly known as dumping Dumping is when one country sells its goods in another country at a price below the cost of production CVDs or other regulatory measures can be imposed Section 4 39 39 quot 39 and Regional Trade A reem ents I Multilateral Trade Agreements MTAs MTAs are result of the negotiation of reductions in world trade barriers among the trading countries of the world b First MTA in 1947 to help revive trade after the depression years and World War II a C i ii iii General Agreement on Tariffs and Trade GATT signed and then changed with each new round of negotiations every few years since the 1940s International Trade Organization ITO was proposed to administer to the GATT but not approved by US Congress GATT became not only a system of rules for commercial trade relations but also a forum for trade negotiations and conflict resolution GATT Uruguay Round 1 ii The Uruguay Round signed in 1994 1 Most important round for agriculture 2 First time that reductions in agricultural trade barriers were negotiated 3 Negotiations lasted 8 years 19861994 4 Final document contained more than 450 pages 5 Signed by 111 countries with others signing later Agriculture Played Central Role in Uruguay Round Negotiations Completely new operational rules for agriculture agreed upon 2 Three major areas pillars of negotiation and agreement a Market Access iii iv b Export Competition Domestic Subsidies The Subsidy Boxes All policies were divided into 3 groups or boxes 1 2 3 Amber Box a Domestic policies deemed to be production and trade distorting Box b Includes ALL domestic policies except those in the Green or Blue boxes c Agreement to reduce domestic subsidies applies only to Amber box Green Box a Domestic policies deemed to distort production and trade only minimally b Not subject to countervailing duties or GATT challenges c Include policies relating to research extension inspection marketing 5 P Blue Box a and promotion infrastructure food security stocks domestic food assistance crop insurance income assurance schemes disaster payments retirement programs structural adjustment programs environmental protection programs decoupled producer income up ort Amber Box with conditions Subject to CVDs or GATT challenges under certain conditions b Other Uruguay Round Agreement Provisions 1 The Peace Clause 2 Sanitary a 3 b 0 P een Box policies nonactionable for CVDs or GATT challenges and Phytosanitary Measures Measures to help distinguish between genuine health and safety import rules and disguised protection Governments allowed can set their own standards BUT they must be based on sound scientific evidence Problem Tests of scientific evidence may be ambiguous and contradict each other Example Dispute between US and the EU on importation of meat from cattle raised with growth hormones Do EU import rules really protect EU consumer health or just a disguised way to protect EU cattle producers from imported beef The World Trade Organization a 9 Old idea of an organization to administer the GATT agreement finally approved A SuperGATT Institution with greater powers of rule makingmaking and enforcemen Functioning since 1995 Forum for Dispute Settlement Sovereignty concerns Countries lose power and authority to an international organization Countries have to conform to international standards rather than setting their own domestic standards d New Round of Trade Negotiations Doha Development Agenda Seattle Ministerial Conference December 1999 1 Surprising level of protests and demonstrations Meeting suspended without agreement to begin new round for 2 reasons i ii iii 2 a b Irreconcilable policy differences among major participants Poor procedural process that left LDC issues out New WTO negotiations on agriculture began in early 2000 anyway Start date mandated in Uruguay Round agreement 2 Met again in November 2001 in Doha Qatar to consider the negotiating proposals submitted by 121 governments 1Iinisterial Conferences Since Doha Meeting 1 iv V vi A Lot of Work and Negotiating But Little Progress Achieved 1 Negotiations were to conclude by January 2005 2 Still negotiating modalities methods of cutting tariffs and subsidies 3 Easiest way to cut is to use a formula but 150 countries must all agree 4 Hong Kong meeting set deadline for establishing modalities as April 30 2006 Negotiations Suspended April 2006 1 Informal consultations among group of importing and exporting countries continued in an effort to achieve a breakthrough that to allow agriculture talks to resume Negotiations Suspended Again 7 July 2008 1 Talks reconvened but impasse reached in July 2008 2 Dispute between Less Developed Countries and Developed Countries 2 Regional Trade Agreements a Types 1 ii iii iv V Preferential Trade Agreements 1 lower trade barriers among member than nonmember Free Trade Area all barriers to trade removed among members each country retains own trade barriers with nonmembers Customs Union 1 no trade barriers among members 2 harmonized external trade barriers Common Market 1 customs union with free movement of labor and capital among members Economic Union 1 common market with harmonized and unified monetary and fiscal policies b EUROPEAN UNION i ii iii iv Created in 1957 as European Economic Community EEC with 6 members Belgium France Italy Luxembourg The Netherlands Germany Currently 27 members 1 Austria Belgium Bulgaria Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta the Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden and United Kingdom Currently 3 Candidate Countries 1 Croatia Turkey and Former Yugoslav Republic of Macedonia Officially Recognized as Potential Candidates ania Bosnia and Herzegovina Montenegro and Serbia c MERCOSUR i r iii lt S 5 Created in 1991 with four members Brazil Argentina Paraguay Uruguay Chile and Bolivia participate as associates but not mem e MERCOSUR is world s third largest trading zone 1 200 million consumers 2 GDP of US 850 billion Intraregional tariffs 1 All have all been eliminated except sugar 2 Trade among member countries grew 350 from 1991 tol997 External tariffs 1 85 are common imperfect customs union 2 Range from 0 to 20 Tariffs before MERCOSUR 1 Argentina average tariff rate of 20 038 2 Brazil average tariff rate of 58 0105 Tariffs after MERCOSUR 1 Argentina average tariff rate of 14 2 Brazil average tariff rate of 16 viii Future Expansion Plans to include the Andean Pact group Peru Ecuador Bolivia Columbia Venezuela d AsiaPacific Economic Cooperation Forum APEC i Created in 1989 with 21 members in the Pacific Basin including the US Canada Mexico Chile and Peru ii Declaration of 1994 1 Plan to create a free trade zone by the year 2010 among developed countries and by 2020 with all remaining member countries iii Claims to be Open Regionalism which permits both member and nonmember countries to enjoy benefits of freer trade iv Open Regionalism controversy 1 US complaint that that EU unilaterally benefits from the freer trade that APEC creates Without agreeing to any of its own trade barrier reductions e North American Free Trade Agreement NAFTA i Three Separate Bilateral Agreements US Canada CUSTA 2 USMexico a Immediate Tariff Elimination i About 50 of US Mexico Trade b Gradual Elimination of Tariffs 39 ears 10 of trade 10 or 15 years sensitive products TariffRate Quota TRF protection for most sensitive products 3 Mexico Canada ii Other Provisions Phased elimination of NTBs a Mexico to eliminate import licensing b US to replace Section 22 with TRQs c Mexico to be exempt from Meat Import Law 2 Sanitary and Phytosanitary Protection 3 Rules of Origin 4 Trade Dispute Resolution Mechanism i39 ii39 Section 5 US A ricultural Resource and F 39 39 Policv II Public Goods The Primary Market Failure Problem a Goods provided or protected by government for society in the interest of the common welfare of society i Available to everyone i39 One person s consumption of a public good does not affect another s consumption b Basic Resource Use and Environmental Policy Issues i Should the societal benefits from the use of resources be treated as public goods that is protected from the effects of profitdriven decisions through government programs III Four Basic Agricultural Resources of Concern for Policy a Farmland i Increasingly treated as a public good ii Key Policy Questions Regarding Farmland 1 Are there conditions under which farming should be treated and regulated as a public good 2 Which specific attributes of farmland should be treated as public goods to be protected and regulated 3 What specific measures should be used for protecting these public goods 4 Are such public goods issues federal state or local issues iii Three Primary Drive Farmland Policy l The ability to meet global food needs a Malthusian concerns b Biotechnology c Farmland competition for water resources 2 Preserving fragile lands 3 Preserving amenities associated with farmland pen spaces and scenic views particularly in areas close to urban centers b Water Agriculture is single largest user of water 7 80 of all water consumed in US About 75 of all irrigated cropland is west of Mississippi River Areas of Greatest Con ict over Water and Water Policy l Irrigated fruits and vegetables mostly in the west 2 Irrigated farming regions of the arid Southwest Source of Most Water Problems 1 Water use laws a Laws that give owners of water rights the right to use water however they want as inefficiently as they want 2 Water scarcity and quality issues 3 When water is a free good there is no limit on its use nor any protection against pollution or misuseoveruse v Policy Options for Water Issues Water Markets Supply and Demand 2 Reasonable Use Requirements 3 Increasing Supply of Surface Water 4 Water Allocation Policies 2 c Energy i Rising fossil fuel prices and policy changes eg Energy Policy Act of 2005 have created demand for new energ sources Renewable energy sources bioenergy derived from plants one of the most rapidly growing sources of new energy iii Law of Unintended Impacts Rapid increase in grainbased ethanol production affects agricultural markets local communities consumer prices and environmental quality The growing use of corn for ethanol highlights 2 key issues 1 Supply of corn is small compared to size of US gasoline demand To reduce dependence on imported oil other domestic sources of renewable energy must be developed 2 Increasing production of grain for ethanol production will have significant implications for all of agriculture v Farm Bills and Energy Policy 1 Farm Security and Rural Investment Act of 2002 first farm bill to include an energy title a Title IX created range of programs to promote bioenergy and bioproduct production and consumption that is subsidies to produce biofuels and to reduce the cost of biofuels to consumers 2 Food Conservation and Energy Act of 2008 also includes an energy title a Additional subsidies for biomass production particularly for advanced biofuels including biodiesel and cellulosic biofuels d Endangered Species and Biodiversity i Biodiversity is concerned with maintaining the ecosystems within which organism live and protecting the wide genetic variety existing within them ii Rate of extinction is accelerating to one species per hour Policy issues and options relate to the preservation of genetic diversity 1 Endangered Species Act of 1973 Focused on slowing the loss of plant and animal species and the ecosystems on which they depend rivers wetland etc 2 2 All government agencies including USDA required to ensure that their activities do not jeopardize either the lives or habitat of the 700 endangered species in the US IV ENVIRONMENTAL POLICY AND AGRICULTURE a Creation of Environmental Protection Agency EPA in 1972 marked beginning of federal regulation of the environment b Two Types of Pollution Pointsource and Nonpointsource i Pointsource pollution can be identified as to source whereas nonpointsource pollution cannot Industrial or municipal waste is usually pointsource pollution because the source can usually be identified Farming is a nonpoint source of pollution because there are few well defined points of pollutant discharge c Who Develops and Implements Environmental Policy i Federal state and local governments ALL involved in development and implementation of environmental policy affecting agriculture USDA s primary role Helping farmers understand and adjust to all environmental regulations affecting their operations Environmental Policies Affect 5 Areas Related to Agriculture i Soil Conservation 1 Soil conservation became policy concern during the Dust Bowl years of the i P 1930s 2 Main policy approaches to soil conservation a education through USDA Soil Conservation Districts b payments to farmers as incentives to adopt soil conservation practices and technologies c requiring soil conservation practices as a condition for receiving farm program benefits cross compliance 3 EPA has emphasized payments to farmers to make changes that improve water quality particularly related to animal waste management Water Quality 1 1972 Clean Water Act CWA a Mandated system of technologybased standards to reduce waste discharge as a requirement to obtain discharge permits Important implications for confined animal feeding operations Pesticides 1 CWA of 1972 increased pressure on both state and federal environmental regulators to find ways to control nonpoint sources of pollution like pesticide runo 1974 Safe Drinking Water Act set maximum contaminant levels for drinking 19 wa r Air Quality 1 Bigger concern for agribusinesses than for farmers a Strict emission standards for grain elevators and cotton gins b Biggest area of con ict proposals for regulation of particulate matter sulfur dioxide nitrous oxide and methane emissions from confined animal feeding operations Global Warming 1 Controversy on whether global warming is occurring and if so what its effects are 2 Policy concerns over global warming a Warnings of rising ocean levels due to glacier meltdown and the potential effects on weather patterns Concern that agriculture becoming more productive in northern climates developed countries and less so in already warm climates less developed countries 3 Kyoto Protocol I 37 Specifies by how much developed countries must reduce greenhouse gas emissions b No requirements on developing countries due to high cost of compliance c US refused to sign because of disagreements over how to deal with lobal warming e Environmental Policy Options 1 ii Free Market Regulations Common law Prohibiting practices found to adversely affect the environment Nb l 3 Requiring adoptron and use of certain pollutionreducing practices or technolo ies 4 Setting standards for pollution reduction instead of requiring adoption of specific practices or technology 5 Cost sharing Carrot approach 6 Crosscompliance denies program benefits to farmers if they don t employ specific conservation practices Stick approach 7 Pollution taxes 8 Right to farm laws FOOD SAFETY POLICY a Need for food safety policies highlighted by recent events i V Outbreak of E Coli contaminations in 1992 International spread of anthrax following the terrorist attacks of September ll 2001 Mad Cow Disease in 2003 Peanut Butter Salmonella Outbreak in 2009 Many others b Policy Alternatives to Improve Food Safety 1 ii Let the Buyer Beware Caveat Emptor Hazard Analysis Critical Control Point HACCP Major policy issues 1 Should HACCP be required on the farm and in food transportation retailing and restaurants 2 Should HACCP be required for handling of fruits and vegetables Traceability The ability to identify the source of food contamination at any point in the food am 2 Policy issue What requirements should be imposed on whom in developing an adequate system to trace food contamination Irradiation Use of ionized electron beans radiation to kill bacteria and parasites that cause food borne disease Regulation of Food Additives Labeling Risk Assessment and Tolerance l Delaney Clause Food Additive Amendment required zero tolerance for cancer causing substances in the food supply 2 Problems with zero tolerance a our technical ability to measure increasingly minute amounts of substances in food is increasing rapidly b some additives occur naturally in certain foods and the findings that minute amounts of certain substances may not cause cancer 3 Food Quality Protection Act of 1996 changed standard to reasonable certainty of no harm viii Biotech Foods Major policy issue Is biotechnology an additive subject to the control of the FQPA of 1996 2 Genetically Modified Organism GMO scare in 2000 StarlinkTM corn 3 Debate continues complete ban vs requiring mandatory labeling or stringent tests ix Organic Foods 1 Policy problem How to define what an organic product is what inputs are natural and what production processes yield organic products 2 USDA developed National Organic Program x International Standards Organization ISO c US Food Assistance Policy i Food assistance programs account for about half of USDA s budget and include at least six program areas Commodity distribution a the distribution of food purchased by USDA for child nutrition programs 2 Food stamps a coupons and Electronic Benefits Transfer EBT cards for lowincome families to purchase nutritious foods 3 Child nutrition programs a school lunch programs school breakfast and related childcare food programs summer food program special milk program 4 Women Infants and Children Program WIC a provides food nutrition counseling and access to health services to low income women infants and children 5 Senior nutrition programs ows adult care centers to participate in food programs b Many programs especially target the food and nutrition needs of low income elderly people 6 Cashing out often proposed a Consolidate all payments into a single cash payment to participants d US Nutrition Education and Labeling Policy i USDAadministered policies to help consumers make nutritionally sound decisions in their food purchases 1 Dietary guidelines a Provide authoritative advice about how good dietary habits can promote health and reduce risk of major chronic diseases b Advice on the type and variety of foods to eat for good health body weight and exercise food ingredients intake for good nutrition alcohol intake and good hygiene 2 Food pyramid Designed to assist consumers in making healthy food choices Updated in 2006 to reflect the latest nutritional science 3 Food product labeling regulations a Requires four types of labeling to assist consumers in purchasing nutritional food i Product identity labeling ii Ingredient labeling iii Nutrition labelin iv Preparation and warning labeling
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